Chapter 9:Applicatioins of the legislative and regulatory framework Flashcards
1
Q
List the ten key principles relating to the provision of financial services, which govern the relationship between an intermediary and a customer
A
- Integrity
- Skill, care and diligence
- Market practice
- Information about customers
- information for customers
- Conflicts of interest
- Customer assets
- Financial resources
- Internal organisation
- Relations with regulators
This is SICI FOR MICI
2
Q
Explain what is covered by
- Integrity
- Skill, care and diligence
- market practic
A
Integrity
- Firms should observe high standards of integrity and fair dealing
Skill, care and diligence
- Firm should act with due skilll care and diligence
Market practice
- Firm should observe high standards of market conduct and comply with any code or standard in force and as it applies to firm
3
Q
Explain what is covered by
- Information about customer
- Information for customers
A
Information about customers
- Firm should seek from customers it advises, or for whom it exercises discretion, any information about their circumstances and investment objectives which might reasonably be expected to be relevant in enabling it to fulfil its responsibilities to them
Information for customers
- Firm should take reasonable steps to give customer it advises, in comprehensible and timely way, any information needed to enable him to make balanced and informed decision
- Firm should smilarly by ready to provide customers with full and fair account of fulfilment of its responsibilities to them
4
Q
Explain what is required under the heading
- Conflict of interest
A
- Firms should either avoid any conflict of interest arising or, where conflicts arises, should ensure fair treatment to all its customers by disclosure, internal rules of confidentiality, decling to act or otherwise
- Firms should
- Not unfairly place its interests above those of this customers
- Should place customer’s interest above its own, where customer would reasonably expect this
5
Q
Explain what is required under the headings
- Customer assets
- Financial resources
A
Customer assets
- If the firm is responsible for the customer’s assets, then it should arrange proper protection of them, by way of segregation and identification of those assets or otherwise
Financial resources
- Firm should ennsure it mains adequate financial reseources to meet its investment business commitments and to withstand risks to which its business is subject
6
Q
Explain what is required under the headings
- Internal organisation
- relations with regulators
A
Internal Organisation
- Firm should organise and control its internal affairs in respoonsible manner and keep proper records
- Where firm employs staff it should have adequate arrangements to ensure they are suitable, adequately trained and properly supervised and that it has well defined complicance procedures
Relations with regulators
- Firm should deal with regulator in open and co-operative manner and keep regulator promoprly informed of anything concerning firm that might by resonably expected to be disclosed to it
7
Q
List the set of ten principles relating to institutional investment practices, which are relevant to any situatioin where an investor employs an investment manager to invest money on their behalf
A
- Regular reporting
- effective decision making
- performance measurement
- Expert advice
- Activism
- Transparence
- Clear objectives
- Appropriate benchmarks
- Focus on asset allocaiton
- Explict mandates
REPEAT CAFE
8
Q
What is meant by effective decision making and clear objectives principle
A
Effective decision making
- Decisions should only be taken by person or organisations with skills information and resources necessary to take them effectively
- in particular, trustees should have appropriate knowledge to question advice of investment consultant
Clear objectives
- Requires trsutees to set out overall investment objectuve for fund that
- Represents their best judgeent of what is necessary to meet fund’s liabilities and
- Takes account of their attitude risk
- Objectives should not be expressed in terms unrelated to fund’s liabilities, eg performance relative to other funds or market index
9
Q
Explain the principles underlying focus on asset allocation
State the 2 recommendations of the expert advice principle
A
Focus on asset allocation
- Asset allocation should recieve sufficient level of attention, espeically as it typically has greater iimpact on rsults than stock selection
- Decision makers should consider full range of investmet opportunities, not excluding from consideration any major asset class
- Asset allocaiton should reflect fund’s own characteristics (both nature of liabilities and appetite for risk) and not average allocation of other funds
Experts advice
- Contracts for acturial services and investment advice should be opened to seperate competition at regular intervals
- Fund should be preparted to pay sufficient fees for each service to attract broad range of kinds of potential providers
10
Q
State the recommendatons of the explicit mandates principles
A
Explict Mandates
- Trustees should agree explict mandate with each investment manager setting out
- Objective, benchmark and risk parameters that, together with all other mandates, are coherent with fund’s aggregate objective and risk tolerancces
- Manager’s approach in attempting to achieve objective
- Clear time scales of measurement and evaluation
- Manadate should not exclude use of any set of financial instruments without clear justification in light of specific circumstances of fund
11
Q
State the recommendations of the activism principle
A
Activism
Managers should incorporate explict strategy on activism elucidating:
- Circumstances in which they will intervene in a company
- Approach they will use in doing so
- How they measure effectiveness of this strategy
12
Q
State the recommendations of the appropriate benchmarks principle
A
Trustees should
- Explicy consider, in constitution with their investment managers, whether index benchmamrks they have selected are approrpriate
- If seeting limits on divergence from index, ensure they reflect approximations involved in index construction and selection
- Consider explicity, for each asset class, whether active or passive management more appropriate given efficiency, liquidity and level of transaction costs in market concerned
- Where they believe active management has potential to achieve higher returns, set both targets and risk controls that reflect this, giving managers freedom to persue genuinely active strategies
13
Q
State the recommendations of the
- Performance measurement principle
- The regular reporting principle
A
Performance measurement
- Trustee should arragne for measurement of performance of fund and should make formal assessment of
- Own procedures and decisions as trustees
- Performance and decision making delegated to advisers and managers
Regular reporting
- Trustees should publish statement of investment of principles and results of their monitoring of advisers and mangers, and send them annually to members of fund
- Statement should explain why funds has decided to depart from any of these principles
14
Q
State the recommendations of the transparency principle
A
A statement of investment principles should set out
- Who is taking which decisions, and why this structure has been selected
- Funds investment objective
- Fund’s planned asset allocation strategy, including pojected investment returns on each asset class, and how this strategy has been arrived at
- Mandate givenn to all advisers and investment mangers
- Nature of fee structures in place for all advisers and invesetment mangers, why this set of structures has selected
15
Q
List
- Four factors that have contributed to an increase in cross border markets and transatctions in the EU
- Four barriers to the integration of retail financial services across Europe
A
Four factors that have contributed to increase in cross - border markets and transactions in EU
- Remval of barriers
- Launch of Euro
- Global derefulation
- New technology
Four barriers to integration of retail financial services
- Different types of product offered
- Cost of regulation
- Tax systems that differentiate between local and foreign products
- Cultural preferences
